As cannabis prohibition continues to come to an end, new markets for cannabis businesses open every day. Medical marijuana dispensaries are going recreational, multi-state operators continue to expand, new brands are launching, and more potential customers are emerging. In this crowded space, dispensaries need a strong marketing strategy for both new customer acquisition and retention in order to stand out and face the ever-growing challenges of this industry to achieve their business goals.
In many places, it is no longer novel to simply dispense cannabis. In order to thrive in the current climate, dispensaries need to provide their customers not only with a great product but with a great experience as well.
One of the best ways to do this is by introducing a cannabis customer loyalty program. These types of rewards programs are a time-tested way to increase customer retention and generate revenue.
In this post, you’ll learn why they work, how they differ in the cannabis industry compared to traditional retail stores, and how to structure your own program for success.
Loyalty programs work because of what’s known as the “Pareto Principle”—aka the 80/20 rule. It says that 20% of your customers account for 80% of revenue, and acquiring a new customer can cost as much as 7x more than retaining an existing one.
Because of this principle, sales teams and marketers must focus on turning existing customers into repeat customers. Dispensary loyalty programs are not supposed to please everyone. They are supposed to build relationships between you and your most loyal customers by explicitly treating them like VIPs not just an average customer.
Keeping these main revenue drivers happy and coming back for more is the best recipe for success. Not only do loyal customers visit more often, but they purchase a wider range of products and more of them, according to Headset. So don’t worry that curating your operation towards a select few will result in a narrow section of inventory being sold.
The Pareto Principle is a large reason why we focus so much on loyalty marketing here at springbig, but we don’t just follow it blindly, we put it to the test. We ran the numbers on 10 of our biggest clients in the most competitive states in the cannabis industry and here’s what we found.
From this case study, we can clearly see how active loyalty members are the most valuable customers you have, making up 74.6% of total sales in the year compared to 19.3% being made up by non-active members and 5.8% being made up by non-members. So, how should you structure your loyalty program in order to gain a more active and loyal customer base? Even though non-loyal customers’ average transaction size is higher initially, overtime they reduce drastically as loyalty customers begin to visit more often and spend more due to receiving exclusive deals.
Cannabis dispensaries are currently under strict and often complicated regulations on how and where it can advertise. Most traditional forms of marketing and even social media marketing are prohibited or severely limited, so retaining customers once they’ve heard of you is vital.
Traditional retailers are not nearly as restricted in their marketing content as cannabis dispensaries, and they still use loyalty programs. For example, Starbucks and Adidas both have comprehensive loyalty programs in place. This is a good indicator of just how important they can be for your company’s retention strategy and an overall successful business.
While it is true that loyalty marketing for the cannabis industry is more restricted than others, in the primary markets like California, Washington, Nevada, and Colorado it is almost as unrestricted.
Restrictions on cannabis loyalty programs in certain markets are due to privacy laws that prohibit dispensary CRM systems and POS software from saving customer contact information for email and SMS marketing purposes. For example, in Oregon, personal contact information must be deleted after 48 hours. This obviously poses a problem for CRM and loyalty programs because it severely limits your ability to communicate with customers.
However, springbig has solved this problem with the implementation of a dedicated electronic signature (e-sig) application that enables customers to easily opt-in to having their data stored, allowing the dispensary to keep their contact info and remain compliant with all marketing regulations.
Now that you understand some of the logistics and restrictions, let’s talk about how to structure a loyalty program for cannabis retail.
Not all forms of loyalty rewards programs are the right fit for dispensaries, and choosing the wrong one can be toxic to your ROI. There is a common misconception that visits-based loyalty often seen at places like coffee shops is the right choice. The idea being that if a loyalty program is supposed to generate more spending per visit, so you should reward customers based on customer visits using a simple punch-card or system – or worse – gift cards.
But unlike a coffee shop where spending behavior remains the same across all customers where pretty much everyone is buying a drink within the range of $2-5, cannabis dispensaries have a vast array of products and a wide range of customer spending habits (or even unknown, i.e. everyone has a general idea what’s sold at a coffee shop, but in the budding cannabis industry there are new products created constantly and consumer spending behavior remains a grey area) desires and shopping habits. Cannabis consumers enjoy the browsing experience and the ability to sample 4-5 different products. One time Shoppers won’t become repeat customers if your cannabis marketing content is not relevant to them.
If you are distributing points to your customers by the visit, there will be no way to accurately correlate the ratio of points to dollars spent. For example, if a customer earns 50 loyalty points for each purchase they make at your shop, on any given visit, one customer can spend $20 while another can spend $100.
Because of this, rewarding customers based on dollars spent is the most effective for cannabis dispensaries because it proportionately rewards your VIPs. Remember, the top 20% of customers account for 80% of your business, so taking care of your VIPs is one of the most important parts of a customer loyalty program.
However, this isn’t to say that you should completely ignore everyone else. You still want to entice new people to enroll in your cannabis loyalty program even if they aren’t currently a VIP.
One way to do this is by implementing tiers into your program. Spend-based tiers, for example, will still reward lower spending customers but create strong incentives to earn more points in order to reach the highest tier.
Simply starting a rewards program at your dispensary does not guarantee people will actually use it. According to a study conducted by Headset, “almost 40% sign up only for one initial transaction and never return.” Since the primary purpose of a loyalty program is increasing customer retention and average spend, this problem must be addressed in order for the program to succeed.
This drop-off in participation occurs because of a bad customer experience. It only works if customers are kept informed of the latest daily deals and special incentives available to them in order to optimize their shopping experience.
The solution is to extend the loyalty program outside of the confines of just the in-store experience. Don’t let customers forget about the program as soon as they walk out the door. By maintaining contact with members through text-based loyalty and email marketing, you not only remind customers about the program but show that you actually value them as customers.
This can be easily accomplished with springbig automation features from basic functionalities like points balance alerts after purchases and daily deals, to being able to predict when future purchases will occur and send special deals right before. (Yes springbig really can do that! Schedule a Demo today to see it in action!)
Not only is text message a great way to stay on the minds of customers and bring them value, but it is also the preferred form of B2C communication: 89% of customers wished businesses used messaging services and 49% of them preferred SMS marketing over other messaging services like WhatsApp and Facebook. They are far more efficient as a digital marketing channel compared to push notifications, which are often ignored. Text messages have an open rate of 99%(!) and 90% are opened within the first 3 minutes of being received.
Text-based loyalty also removes all of the frustrating customer experience to entry commonly seen in other App based loyalty. Springbig is built specifically for cannabis, offering a completely frictionless system that does not require new members to create a password and account. All that is needed is a phone number during the initial enrollment and that’s it! The customer’s rewards wallet is sent directly to their phone. If customers don’t want to give their phone numbers, don’t worry. Springbig also has email marketing features, so just get their email address and sync your email campaigns with our SMS engine.
Turn customers into influencers by giving them incentives to refer their friends, family, and followers using a dispensary referral program like Budz
Offer something as simple as a pre-roll in return for referring and then rewarding that person for bringing in another friend and soon everyone in town will know your dispensary’s name and how awesome your referral program is.
Don’t worry about turning your customers and patients away because they feel spammed. Besides the fact that customers prefer texts over other forms of marketing communication, a cannabis marketing platform that offers insights into how your customers respond to your promotions and discounts will allow you to craft personalized and relevant content in your marketing campaigns.
Through full transactional integration between your POS (point-of-sale) and cannabis CRM providers, you can combine data streams to give you the most accurate picture of your customer’s individual shopping behaviors and product preferences. Segmenting Audiences into product categories based on the type of cannabis products that they enjoy is as easy as a few clicks.
Full API integration between your POS and loyalty provider ensures no gaps in data to give you the most accurate view of your KPIs. This gives dispensaries the ability to streamline their sales and customer service process making sure they are stocking exactly what the customer wants when they want it.
It also provides insights into where your business is bleeding. Flowhub has numerous features that help prevent fraud and shrinkage and springbig’s platform was designed with this in mind as well. Full integration eliminates the need for tablets or any additional loyalty-specific hardware which are susceptible to internal fraud, the most common cause of shrinkage in retail.
A dispensary-specific CRM gives you the exact customer service, sales, and marketing options you need to run a successful loyalty program and is a surefire way to increase customer retention and maximize revenue. When combined with text marketing capabilities and integrated with your POS, crafting custom, and targeted promotional campaigns based on insights into your inventory performance becomes as simple as a few clicks.